The reader interest is doubtless due to the recent sharp decline since mid
January. I personally sold a portion of my and client positions when the
stock was in the $1.75-$2.00 range, and repurchased it for some accounts around
$1.30 (including my own.) These accounts are currently showing a loss of
around 30-35%, not counting the gains taken last year.

I actually have not been watching the recent decline, but seeing the stock at
$0.82 today makes me wonder: should I buy more? Should I take a tax loss
for those accounts that could use one? Has something happened to make the
stock look worse, or is the current decline just the effect of falling markets
on what has always been a very speculative stock?

Those Pesky Banks

Two weeks ago, I was talking to a friend who acts as a CFO for small wind
developers. Unprompted, he mentioned that banks would not finance CPTC's DeWind
turbines because of their lack of track record, which is a gigantic barrier
to incorporating them in a US windfarm. My friend made the same comment
about AAER
Inc [TSE:AAE], a company
which AltEnergyStocks
Editor Charles Morand bought last year (He still owns it, and says he bought
if for other reasons, but is not overly concerned about turbine financing.)
In general, I have not been paying nearly as much attention to CPTC's wind
division, because I'm more interested in the transmission play, and I had
assumed that, given the long backlog for turbine orders from major
manufacturers, DeWind would find places to sell as many turbines as Westinghouse
can manufacture for them. This financing difficulty is not news to
investors who have been following DeWind, but it raised the question of how many
turbines they will be able to sell until they build more of a track record in
such places as the
Czech Republic.

However, since this is not news, it can't account for the stock's
decline. CPTC does seem to be making accepted progress towards getting
these turbines tested and certified, which should do something to ameliorate
banks' reluctance to finance DeWind turbines. They are currently waiting
on two reports from the National Renewable Energy Laboratory and the Department
of Energy, as well as negotiating with insurance companies which would insure
the turbines to allow bank financing.

Uncertainty among investors as to the results of the DOE and NREL
certifications are likely to be the cause of some of the decline. This
sort of uncertainty can feed on itself in down markets like the one we are
currently experiencing, but that leads to buying opportunities for brave
investors.

Latest Earnings Release

The Feb 11 December
quarter earnings release certainly provides no explanation for the recent
decline (although the decline began a full month before the release, so it would
require the leak of insider information if it had.) With revenues having
doubled from the 2006 December quarter, and up 40% from the previous quarter,
the expectation would be that the stock would also be up. Both the DeWind
and ACCC Cable divisions seem to be making headway towards broader market
acceptance.

In contrast, operating cash flow for that quarter was almost $14 million in
spending, mostly due to a large increase in inventory. With cash on the
books of only $11.5 million, their balance sheet looks weak, so failure to
convert those inventories to cash could lead to a liquidity crunch in the coming
quarters. This might lead to a dilutive stock offering, which would
probably be bad for current shareholders, unless it were in order to finance an
increase in orders.

The company currently does not anticipate needing new cash until June, but
seems determined to avoid further dilution if at all possible, mostly by relying
on customer payments to fund inventory growth. This adds both uncertainty,
but also means that any gains are likely to be much more profound.

Conclusion

I like what I see. The company has made considerable progress over the
last year, and the stock is staying at the same price. As the ACCC
conductor begins to make a significant contribution to the bottom line, and its
turbine certification continues as expected, the company seems likely to
maintain current revenue growth rates. At some point, barring too many unforeseen
hiccups, investor greed sparked by rapid revenue growth should overcome
uncertainty.

UPDATE: Shortly after publication, two readers pointed out that I'd
missed the most likely cause of the sell off: selling
by Millenium Partners, to pay an SEC
fine. All the more reason to buy, if the reason for selling has
nothing to do with the company. One of these readers gave the following
detailed reasoning:

One issue that I noticed you did not cover is the selling by Merriman
(Englander) of Twelve million shares to cover a 148 million fine by the SEC.
This can explain the dropoff in share price. The market maker that handled
the sale of the shares is ARCA, I believe. If you notice, when ARCA
appears to be off the ask, the stock has a tendency to go up.

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indication of future performance. Please take the time to read the full
disclaimer here.

Comments

Nice coverage on the CPTC yesterday. However, there is one more important
factor working against CPTC launching it's new DeWind 8.2 wind turbine.

That factor is the stink now coming off of Clipper Windpower PLC. Their
new distributed gear box is in a second generation design failure situation.
They have made a major attempts to fix it but the concept is incorrect.
For all practical purposes the company is dead in the water and most of their
fleet is down and will remain that way until salvage reality is faced.
This situation makes acceptance of any other new turbine product difficult.
However, DeWind is rugged, proven and has 50 years of Voith experience behind
it, but Clipper has tainted the water a lot. In other words, CPTC has been
beaten down by many factors outside the company. This was a major issue
discussed at their shareholders meeting last week. All they can do is grit
their teeth and move ahead. Their Sweet Water TX demo D8.2 should be
operational this week or next.

Tom - A fairly balanced report. I attended the shareholder meeting and they probably talked about Clipper as much as they talked about DeWind, but personally I am not impressed with that excuse for the continued lack of turbine sales.

DeWind is a company that had over 500 turbines in the field at the time CTC acquired them in 2006 as well as $2.9 billion (with a "B") in turbine reserve agreements supposedly lined up, and none of those legacy customers seem to have been interested in buying more turbines and all of those TRA's were cancelled due to not single deposit being made. Of course we did not learn of the latter until the 10K months after the acquisition had been completed.

Regarding your comment about turbine sales to the Czech Republic gaining credibility, one should note that those turbines as well as the ones destined for Chile in a few months are all of the old-style D8 turbine and not the new Voith-drive D8.2 turbine currently undergoing certification and I do not expect any greater acceptance by the market than has already been garnered with the forty or fifty legacy D8 turbines that have been in the field for a number of years now. At the shareholder meeting we were also informed that after the current D8 orders are fulfilled they will no longer manufacture D8 turbines because they cannot get the original-design gearbox anymore and a redesign (and possible certification) would be too time consuming and expensive. I find this disturbing because to date they have hard orders for 26 of those D8 turbines with another allocation of 24 to the Czech Republic for next year, and they have only sold one D8.2 so far, meaning at the moment the score is 40 to 1 in favor of the old turbine from a market acceptance point of view, and that turbine will no longer be available to the market. In light of their desperate need for sales, there's something about that which makes no sense to me, and it seems to me that at this stage one would want to sell whatever people seem to be willing to buy, wouldn't you agree?

But on top of all those challenges, the bottom line is the balance sheet is very weak compared to those of the competition, especially if you discount the $46 million in "goodwill" they are carrying on the asset side, and given the choice between waiting an extra year for fifty or a hundred million bucks worth of capital equipment from GE or ordering from a company that went through a bankruptcy back in 2005 and could peg-out at any moment with your deposit money, it's a no-brainer.

On the other hand the transmission line business is looking better and better and if somehow freed of the DeWind ball and chain could be very promising, especially their China market.

T. Doom
Good comment on CPTC. With good news coming from the reliability of the Voithturbo Drive of the D8.2, up and running in Germany and South America (one just up and running in Texas) for over a year, hopefully the problems and fast wear with older gear drives, will overcome customer reluctance. I agree with you, that the composite core transmission side of CPTC is looking better then it ever was. Good luck to all . Et Rec

I currently work at cpct, and we have had record breaking sales the last two months standing, and are looking for more to come! Now would be a good time to buy in before it drops again in the winter months! Just giving ya a heads up!

The sad thing is that CPTC's stock price seems to have little to do with Sales or revenues these days. That's typical of off-exchange investing, though... prices are driven more by investor sentiment than fundamentals.